Bill 154 & the ONCA – Two Steps Forward, One Step Back

Those of us who work in the not-for-profit sector have been eagerly waiting for some developments with respect to the Ontario Not-for-Profit Corporations Act, 2010 (the “ONCA”). On September 14, 2017, the Ontario government introduced Bill 154, Cutting Unnecessary Red Tape Act, 2017, which contains the enabling legislation that will allow the ONCA to eventually be proclaimed into force. Although this is progress, the road to actual proclamation into force of the new Act continues to be arduous. The ONCA is not expected to be proclaimed into force for another few years. However, the Bill also proposes changes to the Corporations Act of Ontario (the “OCA”), which will allow not-for-profit corporations to start using some of the long-awaited modernizing changes set out in the ONCA once Bill 154 is proclaimed into force. Proposed amendments to the OCA will not be reviewed in this article, but are reviewed in a separate article featured in the same edition of this newsletter.

An in-depth review of the proposed changes to the ONCA is beyond the scope of this article; rather we will highlight some of the key changes made to the ONCA, many of which are improvements that lawyers and organizations working in the not-for-profit sector have been asking for. The proposed changes to the ONCA are set out in detail in Schedule 8 of Bill 154.

Delay of proclamation of provisions dealing with separate class votes

One of the most contentious features of the ONCA is the enhanced rights of members, particularly where the corporation has multiple classes of members. Where a not-for-profit corporation has more than one class of members, including a category of non-voting members, those members will be entitled to vote separately as a class on certain matters, including: (i) changes to the articles or by-laws that adversely impact the rights of the members of that particular class; (ii) an amalgamation with another corporation; and (iii) selling, leasing or exchanging all or virtually all of a corporation’s property.

When the ONCA is eventually proclaimed into force, it will generally apply automatically to every non-share capital corporation, including those incorporated under the OCA. Corporations will then have three years from the effective date of the ONCA to bring their letters patent, by-laws and any special resolutions into conformity with the ONCA. On the third anniversary of the effective date of the ONCA, any provision of those governing documents that does not comply with the new Act will be deemed to have been amended to conform. In other words, existing Ontario non-profit corporations do not need to file articles of continuance in order for the ONCA to apply to them, even if their letters patent and by-laws do not comply with the ONCA. It also means that upon the ONCA being proclaimed into force, the limited statutory voting rights granted to non-voting members under the ONCA would immediately take effect and apply to corporations who have multiple classes or members, including a non-voting class.

That approach to transition is problematic for many organizations with multiple classes of members who never intended to allow their members to vote separately as a class or their non-voting members to have any voting rights at all. To alleviate the immediate and unintended consequence of the separate class vote feature of the ONCA, Schedule 8 of Bill 154 delays the coming into force of the separate class vote provisions for a period of at least three years from the date on which the ONCA is proclaimed into force. That will give organizations plenty of time to develop a proper membership model based on the corporation’s objectives while at the same time complying with the provisions of the ONCA.

Director’s consent to act must be in writing and be kept

Bill 154 clarifies subsection 24(8) of the ONCA by providing that an individual who is elected or appointed to hold office as a director is not a director and is deemed not to have been elected or appointed to hold office as a director unless the individual consents “in writing” to hold office before or within ten (10) days after the election or appointment. The Bill also repeals and replaces subsection 97(1) of the ONCA and removes the requirement that the director’s consent be “in the approved form,” except for the consent of the first directors. Each individual who is named in the articles of incorporation as a first director will be required to execute a consent to act “in the approved form,” as evidence of their acquiescence to serve as a first director. However, the ONCA will not require that the consent of subsequent directors be in any particular form or set out specific content. That is a welcome change because many not-for-profit organizations ask their directors to execute a consent form that includes such things as their consent to participate in meetings electronically, their confirmation that they meet the eligibility criteria for directors, their agreement to receive notices by email, their agreement to be bound by a Code of Conduct, etc. The change also provides greater flexibility and allows those organizations who do not want to have multiple versions of a consent form to customize their own form of consent based on their own specific needs and include in it the content and matters that are particularly relevant to them.

A new subsection 97(3) has been added to the ONCA to provide that the ministry (i.e. the Director appointed by the Minister) may, at any time by notice, require that a copy of a director consent to act be provided to the Director within the time period set out in the notice.

Proxies

Bill 154 amends section 64 of the ONCA to provide that the use of proxies is optional. Pursuant to the proposed amendments, a member may appoint a proxyholder only if the articles or by-laws of the corporation allow it. Organizations that want their members to have the right to appoint a proxyholder will need to ensure that appropriate provisions are included in their by-laws or articles. In addition, the proposed changes allow a corporation to restrict who may be appointed a proxyholder. In accordance with the new subsection 64(1.2), if the organization wishes to restrict the voting of proxies to members only, then such a restriction must be included in the By-laws or articles of the corporation.

Execution of documents in counterpart

A new section 4.1 has been added to the ONCA to provide that any document required to be signed by more than one person may be executed in several documents of like form. The signed copies will together be deemed to form a single binding document for the purposes of the Act.

Other amendments

Bill 154 proposes a change to the section that sets out the requirement for a non-charitable corporation to receive more than $10,000 of specified funding in order to meet the definition of a public benefit corporation. The change allows the government to modify the $10,000 minimum required to qualify by prescribing another amount through Regulations adopted under the ONCA.

Under the current version of the Act, a corporation must give a copy of the financial statements to all members not less than 21 days before each annual meeting of the members. Bill 154 proposes a change that would give the government the ability to amend the 21 day period by Regulation. Some organizations have indicated that the minimum 21 day period is too onerous and would like to have more flexibility to schedule their annual meeting on shorter notice, depending on when their financial statements are ready. It remains to be seen whether the government will enact any such Regulation once the ONCA is proclaimed into force.

The Bill also introduces a number of other technical amendments to accommodate the filing, keeping and searching of documents required by the Act in electronic format. In addition, it expands the Minister’s regulation-making powers, including the adoption of regulations relating to the content, form, format and filing of various documents. Bill 154 re-enacts the provisions that deal with the continuance of bodies corporate governed by other Ontario legislation and adds further rules to bodies corporate with share capital that wish to continue under the ONCA.

On October 3, 2017 Bill 154 was debated at the second reading then sent to the Standing Committee on Justice Policy. We will continue to monitor developments to this Bill and bring you updates as they become available.

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